In the competitive landscape of loyalty programs, brands constantly seek strategies to deepen customer engagement and drive incremental value. One strategy that has gained traction is tier-based programs, which reward customers with higher status as they demonstrate loyalty and increased spending. While many brands endow status by offering members an elevated tier level as a temporary incentive, this approach can come with some intended consequences. There is an alternative that may alleviate some of these downsides – endowing progress.
At Kobie, we’ve explored this concept extensively, particularly in our 2024 Consumer Research Report. Our findings reveal that while endowing status may provide a temporary boost in engagement, it also carries risks that could potentially harm long-term loyalty. On the other hand, endowing progress – giving members a head start on their journey to the next tier, may foster a more sustainable connection with the brand.
The Two Sides of Endowing Status
Endowing status is a strategy where brands grant members an elevated tier without requiring any initial action on their part. The idea is to give customers a taste of what it feels like to be at a higher level, with the hope that they will be motivated to maintain or requalify for that status. While this approach can produce positive short-term results, it also comes with challenges.
According to our research, 23% of respondents who took advantage of an introductory offer that granted them tier status reported feeling accomplished and happy when they requalified. However, when members failed to requalify for that status, the emotional impact was negative. Words like “used,” “disappointed,” and “upset” were frequently mentioned, reflecting the emotional toll of losing something they hadn’t fully earned. This sense of loss can create a lasting negative impression, undermining the loyalty that brands aim to build.
Additionally, the perceived unfairness of granting status without effort can alienate members who have worked hard to earn their place in a higher tier. Human psychology is wired to detect and react to unfairness, and when some members feel that others are receiving rewards without merit, it can tarnish their relationship with the brand.
The Power of Endowing Progress
In contrast, endowing progress – giving members a boost towards their next tier rather than handing it to them outright, can be a more effective strategy. This approach leverages what we at Kobie call the “head start effect.” When members are given a leg up but still need to put in effort to reach the next tier, they feel a sense of accomplishment and ownership over their progress. This not only strengthens their emotional connection to the brand but also drives them to uphold and maintain their new status.
Members who receive a head start are more likely to engage consistently with the brand, as they feel a stronger sense of reciprocity and a desire to complete the journey. Unlike the potential disappointment of losing an unearned status, the motivation to continue making progress can lead to more continuous and positive engagement.
Exploring Different Approaches: Progress, Status, and a Blend of Both
Consider the approach taken by Southwest Airlines. By offering 1,500 tier qualifying points when customers sign up for their priority credit card, Southwest endows progress but stops short of granting full status. Customers still have to work towards the next tier, but with a significant boost, they feel more motivated to reach their goal.
Hyatt Hotels endow status for members of their World of Hyatt loyalty program, where participants are temporarily granted a higher tier status for a short period. To maintain this status, members are required to complete a certain number of qualifying nights or stays within a specified timeframe. If they meet the requirements, they keep the elevated status; if not, they revert to their previous status level. This approach encourages increased engagement and loyalty during the promotional period while giving members a taste of the benefits associated with higher status.
Similarly, Marriott Bonvoy employs both strategies by crediting status points for every $5 spent and automatically upgrading customers to the next tier upon acquiring their credit card. The combination of endowing progress and status ensures that customers remain engaged while still feeling the thrill of achieving a higher tier.
Thinking Long-Term
In the realm of loyalty programs, the emotional experience of the customer is paramount. While endowing status can offer immediate benefits, it also poses noteworthy risks to long-term loyalty. Endowing progress is a strategic and progressive way to engage members, motivating them to strive for higher tiers while establishing a stronger, longer lasting relationship with the brand.
Designing tiers and the thresholds at with which members qualify is an art and science. The tier must have compelling benefits for which members are motivated to stretch for, but they also must be attainable. For brands looking to incorporate endowing progress into their loyalty strategy, Kobie offers tools and expertise to support this approach. Our strategy and technology can help brands design and implement tiering strategies that accomplish their business objectives.
Written By: Katie Cassidy
Katie Cassidy, Kobie’s AVP of Strategic Consulting leads loyalty experience design and loyalty best practice engagements focused on meeting client program and profitability objectives. She is committed to having a data-driven and customer-centric approach towards delivering client value to every project. She specializes in value proposition development, traditional and digital CRM planning and execution, customer lifecycle and retention framework and short and long-range strategy development.
